Business kleptocracy

by Doctor Science

A kleptocracy is when the government is run for the personal gain of the ruling class, without regard to what is good for the governed or the state as a whole. What do you call it when a business or other corporation is run for the personal gain of the high-level managers, without (much) regard for the stockholders or other owners, the employees, or the customers?

I'm asking because I think this is characteristic of large corporations (and often non-profits) these days, and I don't know what to call it.

The Thief, by Jamie Wyeth.

Comments

[Hartmut]

From a purely legal point of view it is not the duty of a business to work for the benefit of employees or customers. Their duty is to do anything not illegal to benefit the owners/shareholders. If the guys running the outfit do it just for themselves I think it is called 'bad stewardship' and 'breach of commitment'.
One could also call it SOB SOP or in one word 'SOPoSOB'.

[Brett Bellmore]

Another example of public choice theory?

Legally, I think that's "a breach of fiduciary duty". But, yes, it is very common.

[bryan]

suggestions:
a kleptoration
the Mob

[bobbyp]

Hey! Haven't you heard? Greed is good. So instead of criminal theft, it's just collateral damage.

[Mattmcirvin]

@Hartmut: That's the standard criticism of "corporate personhood", that these entities are actually required to act in a profit-maximizing manner with no regard for good citizenship.

But I think this is a different criticism, that some modern corporations, and even non-profits, are actually set up to enrich high-level managers at the expense of the shareholders and everyone else. If they were actually the sociopathic profit-maximizing entities of the standard progressive critique, it would be an improvement.

A while back, Matthew Yglesias argued that you could make sense of some of this behavior in classic class-conflict terms. The Board of Directors of a big corporation consists of people of the same class as the high-level managers, whereas the small-potatoes nonvoting shareholders and the employees are of another class. Incompetent managers get huge compensation at the company's expense because they're all pals at the top. Letting the company fail is no big deal; it happens all the time. Everyone in the Board and everyone in upper management will be fine. Letting the company unionize, say, is a betrayal of the owner class, and is taken far more seriously.

[Hootsbudy]

I submit corporate bulimia.

Such managers are analogous to those with an eating disorder. At some level they are actually self-destructive, but they are driven to ingest far more than they really need. The behavior is parasitic, but to survive they must stop short of killing the host.

[Countme-In]

Hedge fund managers call it a "20% incentive fee", lopped off the top.

Dagny Taggart thought it to be "foreplay." But she was a Randy one.

Rupert Murdoch calls it "reprehensible behavior by lower-level employees and those just above them whom they report to, but no one informed me about it, so how could I have told Maggie about it?"

Paul Ryan is getting ready to unveil his fresh, new term for such behavior --- "Summa Theologica" --- to which Dagny's legs would clamp shut like a bear trap, but Paul is obviously seeing some sort of rational self-interest in being an incoherent d*ck.

Indulging shareholder interests is just another burdensome and misguided form of "Altruism" and "Collectivism", so I'm all for coming up with a brand new word for the opposite of such behavior, since "Crime" has gone out of fashion.

But let's stop and think for a moment. What precisely is a shareholder of a public corporation in 2012, when on most days split-second high frequency trading can amount to 70% of volume on the large worldwide exchanges?

Decent corporate officers with a long-term eye toward building a business that conforms to society's rules (those last five words are always the ones the new crop of vicious ideological twits leave out of Milton Friedman's otherwise strict formulation) who try and conform to shareholder interests might as well try and indulge a blood-sucking mosquito who lands on them 212 times a day.

Other new words required: What is it called when one Tea Party member with a sign reading "John 3.16" stands right next to another Tea Party member with a sign reading "Who is John Galt?", both advocating identically radical public policies.

All I can come up with is: "Alien Marries Predator", with the United States just being a breakaway set for them to trash, until someone has the fortitude to nuke from space.

"Kochleer Corporate Implant" ??

Too much of mouthful that would go in one ear and out the other.

[Countme-In]

Regarding the sign-wielding Tea Partiers above:

I think prostitutes, being pithier, would name them after Secret Service members ("secret service member" will never sound "not dirty" again):::::

Johns

[Roger Moore]

These days, unfortunately, the most accurate description of the situation you describe seems to be "business as usual". But you might also describe it as upper mismanagement or management hypertrophy.

[Countme-In]

You know, I think we already have a term for what Doctor Science is looking for:

The Prosperity Gospel

The acronym is PG (add the mathematical sign for infinity, which I can't produce on my keyboard) ...

Another candidate, which I believe the individuals Doctor Science is referring to use when referring to themselves, is simply .... ME.

MEISM

Of course, some of them, like Richard Nixon, refer to themselves in the third person, so, I don't know.

The President is not in the giving vein today.

[Jay]

The situation you describe is traditionally known as the Iron Law of Institutions:

"The people who control institutions care first and foremost about their power within the institution rather than the power of the institution itself. Thus, they would rather the institution 'fail' while they remain in power within the institution than for the institution to 'succeed' if that requires them to lose power within the institution."

[bobbyp]

But let's stop and think for a moment. What precisely is a shareholder of a public corporation in 2012, when on most days split-second high frequency trading can amount to 70% of volume on the large worldwide exchanges?

fodder.

[Doctor Science]

Jay:

Source of quote, plz?

[bobbyp]

"Source of quote, plz?"

Doc,

Google Jon Schwarz, A Tiny Revolution. That's where I first encountered that pearl of wisdom. Worth a bookmark.

[Fuzzy Face]

And applicable to government bureaucracies, labor unions, and non-profits every bit as much as corporations. Which is why you don't put your trust in any of them.

[Julian]

"That's the standard criticism of "corporate personhood", that these entities are actually required to act in a profit-maximizing manner with no regard for good citizenship."

To my admittedly limited knowledge, companies have no legal obligation to maximize profits. They have a fiduciary duty to shareholders, which means acting in the best interests of the shareholders, i.e. treating the shareholders' interest as though it were their own. But the best interest is not legally defined as profit-maximizing. Honestly, even if it were, how on earth would you calculate that? Most profitable along what timeline?

It is the case that companies often defend themselves in public, or in the newspaper, by claiming a duty to profit-maximize, but they are are lying every time they say it. Notably, they do not make that claim in court, because it has no legal basis.

[liberal japonicus]

These two articles, here and here, seem to be related. The first is about how Apple avoids paying tax in the US thru a variety of methods, all of which are apparently legal. The second is a bit more personal, what I now have to wrestle with for my tax return. I tend to think that when the tax code creates a situation where you work to find loopholes and ways around being taxed, that spreads out and becomes the ethos of the company at large.

[Phil]

The reactions of C-suites and free-market mouthpieces everywhere on proposed "say on pay" rules for shareholders are instructive here: They're almost universally against it.

[Hartmut]

I have no links at hand but I remember occasions where the question of 'best interest of shareholders' came indeed down to a timeline question in the courts. Iirc the company leaderships in question committed the sin of long term planning at the expense of short term profits and got sued by shareholders who wanted money now and to hell with keeping the firms healthy.
In essence the rule is that one has to look at how long the typical shareholder keeps his shares and to not plan beyond that (at least not, if it costs money).
Calls for turning the goose laying golden eggs into dinner can be safely ignored but no eggs may be diverted for a breeding program.

[russell]

I think of this stuff as a kind of rent-seeking.

In large public corporations, ownership is very diffuse, and owners have little or no direct hands-on involvement with operating the business. Boards are supposed to provide oversight, but IMO there's a social dynamic in play -- more or less the equivalent of an 'old boys club' -- that makes it less likely that bad, or at least self-interested, behavior on the part of management will be called to account.

So, in the absence of meaningful oversight, lots of upper level managers use their executive position to extract wealth from the enterprise and put it in their own pockets.

To qualify as rent-seeking, the wealth extracted would have to be greater than the wealth created by their efforts, which can often be hard to measure. In 2010, the top 500 executives in the US made $4.5B, so, $9M each. Maybe each of those folks did, in fact, personally create $9M in value through their own efforts and managerial goodness.

I'm not sure how you would tease apart all of the things that contribute to the value created by a very large enterprise to measure that accurately. But I'm willing to stipulate it as, at least, a possibility, in some cases.

The thing that folks seem to forget, however, when people start arguing about excessive executive compensation is that IT'S NOT THEIR MONEY. The value created by the enterprise does not belong to them, it belongs to the owners. That's the capitalist model. I'm sure they like to think of the place they work as being "their company", but it's not theirs.

It's not their money.

You personally were responsible for $9M of value creation through your management of an enterprise? Great! Good job. We'll keep you on. Now hand over that money, because it's not yours.

Or, you know, you can have some. If you want $9M in compensation, you need to, personally, generate (to pull a number out of my butt) $30M in value. You get some, we get most. Because we're the owners, not you.

That's how capitalism is supposed to work.

An interesting factoid from here:

Between 1996 and 2000, Forbes magazine estimates total CEO compensation in the US grew 166% to an average of $7.43 million, while corporate profits grew by 16%, and per capita income grew by 18%.[23] CEOs made 400 times more than average workers—a gap 20 times bigger than it was in 1965.

Are CEOs personally responsible for creating ten times as much value now, than they were in 1996?

Do CEOs personally create 20 times more of the wealth represented by an enterprise than a rank and file worker does nowadays, compared to the amount they did in 1965?

I don't know the answers to either of these questions. I will say that both assertions seem unlikely, to me.

[Brett Bellmore]

"In large public corporations, ownership is very diffuse, and owners have little or no direct hands-on involvement with operating the business."

Substitute "government" for "business", and "voters" for "owners", and you've got public choice theory in a nutshell. People placed in positions of responsiblity have a tendency to act in their own interest, not in the interest of their fiduciaries, and the only real way around this is to yoke their interest to that of their fiduciaries. In democracy, voting out those who don't act in the public's behalf, in business, voting your shares to accomplish the same thing.

In both cases, those exercising the delegated power have a strong interest in confusing matters enough that their fiduciaries lack the confidence that they're being screwed needed to act.

The best solution is minimizing delegation.

[bobbyp]

The best solution is minimizing delegation.

"Every man a king"
--Huey P. Long

[Doctor Science]

Latin words that might be used in such a word:

latro-

avaric-

How about:

"latrofuscation": theft by making everything too confusing

"avaricibonism": "the belief that greed is good"

avaricianism?

Or the simple "kleptarky"?

[Doctor Science]

Brett:

I observe, though, that there are many more controls on how much money a person in a government bureaucracy can get out of the system, compared to someone in a comparably-sized private organization. True "rent-seeking" (as I understand the term) on the part of individuals in govt. usually involves kickbacks or corruption in some form, it's not direct grabbing of the money as it goes by.

[Brett Bellmore]

Doctor Science, there are an awful lot of ways besides money in which a person suitably inclined can take compensation. (Spending other people's money on their own charitable causes, for instance, instead of pocketing it.) But even sticking to money, I'm sure you're familiar with the almost eerie way people who get elected to public office become hugely better at picking stocks. How their family members start getting well compensated positions requiring minimal actual work. (Like the one that was created for Michele, and then abolished after she didn't need it anymore.)

Laundering the public's money through outside entities in this way can be vastly inefficient, (I'd doubt as much as 5% of the money given to Solyndra made it's way back to Obama!) but when it's other people's money you're laundering, who needs efficiency?

Congressmen still get wealthy wildly beyond their nominal pay.

[Brett Bellmore]

Come to think of it, the "spending other people's money on your own charitable causes" form of embezzlement applies to business, too. Explains why some profitable companies spend their profits on charity rather than dividends to the stock owners.

[russell]

Another example of public choice theory?

Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics.

To me, the chief failing of economics, or to any academic or theoretical inquiry into human activity really, is the assumption of a rational human actor, making decisions based on their own self-interest.

People are motivated by lots of things, including but far from limited to their own self interest.

Plus, people are really really really quirky. They do a lot of stuff that doesn't make a whole lot of sense, even if they are motivated by what they perceive to be their own self-interest.

So, in real life, not purely self-interested, and not particularly rational.

Are there any economic / social / political models that are based on what real live people *actually do*, as opposed to what some ideal Rational Actor would do? I'm curious.

Not presenting this as an argument for or against anybody's points here, it's just an observation.

[Slartibartfast]

It's not their money

While I agree with russell's general sentiment, here, the basic problem is it is their money. The basic problem that russell has with the situation is, as I see it: that people are being legally compensated in ways that are not really in the best interests of the shareholders as a group.

The disconnect between how things should work and how they actually do work isn't something I can get myself terribly worked up over. But that doesn't mean that change can't happen, just that I'm averse to social-engineering approaches.

[Slartibartfast]

Corporate lobbies I am not too particularly fond of. I don't even like employee PACs; those get $0 from me. I am not unsympathetic to the idea of legislation that keeps corporations from spending money to influence legislation without some level of shareholder approval.

[Countme-In]

Russell asked:

"Are there any economic / social / political models that are based on what real live people *actually do*, as opposed to what some ideal Rational Actor would do? I'm curious."

Not according to Alan Greenspan, who is still in shock that his quantitative forecasting models forgot to include the variable for human nature. As Walker Percy noted in another context, human beings can "know" and explain every thing in the universe except themselves.

Slart wrote: "just that I'm averse to social-engineering approaches."

Are you sure? How about stock options tied to stock performance? Surely, compensation and reward as incentive or disincentive are forms of social engineering, whether its CEOs or dogs.

I would think packing the Board of Directors with pliable, like-minded folks and then structuring a richly-endowed golden parachute is social engineering.

Brett wrote: "charitable causes" form of embezzlement applies to business, too."

Well, I'm sure there are abuses here, too, but as a blanket statement (yes, I know, you have your blankets and I have mine ...;) but the only economist I'm aware of that used one word to mean another in that way was Lewis Carroll.

[Countme-In]

Also Slart:

"The disconnect between how things should work and how they actually do work isn't something I can get myself terribly worked up over."

Aren't you in the engineering field? ":O

Remind to duck next time one of your missiles is launched.

[Slartibartfast]

How about stock options tied to stock performance? Surely, compensation and reward as incentive or disincentive are forms of social engineering, whether its CEOs or dogs.

They're there to attract skilled people to the jobs. That's usually what I think of as "the market".

Remind to duck next time one of your missiles is launched.

Trust, but verify. Always. But my purpose there was not to say I am unaware of said disconnects. Having been witness to a truly staggering number of design errors, and having made a few myself, I am far from unmindful of aforementioned disconnects. I can do something about those, personally.

[McKinneyTexas]

I would think packing the Board of Directors with pliable, like-minded folks and then structuring a richly-endowed golden parachute is social engineering.

If it is, it's social engineering on a micro basis and it can be changed without, literally, an act of congress. More accurately, it's just a contract between two parties, the senior executive and the company that wants to hire him/her.

There is a tendency to lump all publicly traded corporations into a single mass and to treat senior management similarly. It is a bit more complicated. Not just anyone has the ability to manage a huge enterprise. There are qualitative reasons why senior executives, especially those who run companies well, are paid handsomely, just as there are qualitative reasons why certain coaches and certain players are paid way above prevailing norms.

Different companies have different cultures, products, services, etc that drive management's conduct and planning. There isn't a 'one size fits all' set of rules that will effectively end abuses without also effectively hobbling creativity, growth, etc. If golden parachutes are bad, I suggest that golden handcuffs are worse. You can have senior management that is captive to a certain philosophy that they might disagree with and want to change, but the cost of doing so is their careers and they have no where else to go. Or, you can have senior management who can push back and the board has to ask itself, 'is it worth cutting this person loose and writing a big check?'

[hairshirthedonist]

There isn't a 'one size fits all' set of rules that will effectively end abuses without also effectively hobbling creativity, growth, etc.

Perhaps not, but no one has suggested that there's one, at least not that I've noticed on this thread. Mostly, everyone is just describing a screwed up situation and pondering how it came to be.

The thing is, how much money does it take to get someone to be a good CEO? I disagree with russell's definition of rent-seeking. It is my understanding that it's not a matter of what the executive produces. It's a matter of how much that executive is receiving in exchange for his/her (given the subject, almost always his) services relative to the least he would accept in exchange for those same services.

Of course, most people will accept more if they can get it. (I understand Mitt's dad turned down some amount of compensation he didn't feel was necessary, back in the day.) The question is whether or not the "more" is necessary to attract the needed talent.

Even the economics books don't extend the supply and demand curves all the way from zero to infinity. They usually just stop before things get ridiculous.

Just because people are getting the money they are now getting doesn't mean that it's the only way for things to work, because it's not that way everywhere in the world today, and it's not the way it used to work in this country a number of decades ago - in very prosperous times.

[McKinneyTexas]

The question is whether or not the "more" is necessary to attract the needed talent.

This question cuts across every line of enterprise and undertaking imaginable at the margins. Is X athlete really worth what he/she is being paid? Would he/she still do the job for less? Ditto actors, musicians, Thomas Friedman, whoever.

Just because people are getting the money they are now getting doesn't mean that it's the only way for things to work, because it's not that way everywhere in the world today

Where else in the world is sufficiently similar to the US to allow for a meaningful comparison? Size matters. So does diversity. So does average levels of education. Bigger means more unwieldy, less amenable to centrally planned/mandated control.

and it's not the way it used to work in this country a number of decades ago - in very prosperous times.

This isn't the first reference by a progressive at ObWi that there were better times in the past. I'd like to know when that was? More importantly, I'd like to know which progressives then thought that corporate governance, management, high level compensation etc were all just fine? I ask this because I don't remember a time when the left--speaking generally here--thought our economy, or market capitalism then was just hunky dory. Just the opposite, in fact.

[hairshirthedonist]

More importantly, I'd like to know which progressives then thought that corporate governance, management, high level compensation etc were all just fine?

How is that relevant? I can't speak for progressives generally, particularly the ones who were around in, say, the 1950's. And let's not exlude the middle between "all just fine" and "totally fncked up." Things could have been better without having been perfect.

Do you think things or just fine or hunky dory now? Do you see no problems with the levels of executive compensation, particularly in relation to performance in many cases? How much would a crappy CEO have to make for you to think there was something wrong? Or a even good CEO? Is there a theoretical limit short of all the money in the world?

[russell]

the basic problem is it is their money.

Well, yeah, once the contract is signed.

Not just anyone has the ability to manage a huge enterprise.

Yes, that's true. Not just anyone has the ability to do anything you care to name.

But is C-level special sauce 166% more valuable than it was in 1996? Is it 20 times more valuable than worker-bee contributions, relative to that ratio in 1965?

At an intuitive level, it seems like there's more involved here than a pure market reckoning of fair compensation.

It is my understanding that it's not a matter of what the executive produces. It's a matter of how much that executive is receiving in exchange for his/her (given the subject, almost always his) services relative to the least he would accept in exchange for those same services.

Yes, that's pretty much the market-oriented analysis of how reasonable compensation should be arrived at.

Personally, I'd prefer a model that is aligned more with value creation, and less with market dynamics. I'm actually fine with extraordinarily productive people getting paid a lot of money, even if somebody else (or, for that matter, they themselves) would do the job for less.

I recognize that's not what we have, and I don't expect that to change. I'm just offering my point of view.

Where else in the world is sufficiently similar to the US to allow for a meaningful comparison?

Since corporations aren't limited by national or geographic boundaries, the list is quite long. Off the top of my head, I'd say that Japan, the UK, and Germany all host corporations that are similiar in size and complexity to Fortune 500 corps here. The list is likely quite a bit longer.

Here's an interesting discussion of C-level compensation across different countries.

[McKinneyTexas]

How is that relevant?

It's relevant in many ways. I can't think of a time in the past when there weren't as many downsides as there were upsides. I also can't think of a time in the past when the left wasn't painting a picture of economic doom and gloom courtesy of corporate America.

Do you think things or just fine or hunky dory now?

No. I think we are over-regulated in areas where regulations simply are not necessary. The recent proposed rules for family farm labor are a good indication of how regulatory progressives think. And of how intrusive regulatory progressives are willing to be. Our city/state/federal debt load and size are huge and no one offers, other than cutting national defense, anything approaching a roll back. I think there is plenty wrong.

Do you see no problems with the levels of executive compensation, particularly in relation to performance in many cases?

If we had an across the board 50% reduction in executive compensation tomorrow, how would that make life any better for anyone? Worrying about executive compensation with 15 trillion in debt and no end in sight is, to borrow an over used expression, rearranging deck chairs on the Titanic.

How much would a crappy CEO have to make for you to think there was something wrong?

I am indifferent to executive compensation. It doesn't affect me or anyone else. It is a miniscule slice of the economy. Microscopic if not subatomic. To me, the value of making an issue out of executive compensation is purely political. The purpose is to generate resentment and jealously and the implication is that government can and should fix the problem.

[liberal japonicus]

I don't think it is just progressives who harken to the past, I seem to remember some conservatives doing the same. So it's not a matter of simply doing that, it is what they are identifying as being worth preserving.

I can't speak for Russell, but it isn't that if executive compensation is reduced, things go back to being hunky-dory. It is that executive compensation seems to be a symptom of a lack of connection between the process of value creation and the enterprises that are supposed to make that value. When the bigger system is out of whack, the smaller parts are going to exhibit some problems of their own.

Not trying to hit you where you live, but I think a similar example would be the problems in the Texas (and the US) legal systems, with things like Cameron Todd Willingham getting executed or this guy staying in prison for 25 years. Simply stopping all executions doesn't really solve the problems, because these things are symptomatic of deeper problems, even if these cases are a microscopic slice of the justice system. But getting at the human actors related to the problem (as the suggestion of legal penalties for prosecutors who withhold exculpatory evidence) is perhaps the only way we have at dealing with the problem.

[Countme-In]

According to the Center on Budget and Policy Priorities, CEO after-tax income in 1980, adjusted for inflation, was 42 times higher than the wage of the average production worker. In 1990, that number climbed to 107.

By, 2010, CEO pay was 343 times the wages earned by the average American worker.

Has the comparative "talent" of the corporate elite (I mean that word in the good, lost sense of the long ago and the far away) increased that exponentially over and above the "talent" of the average American worker?

A related question might be, to what quantifiable extent does CEO pay now reflect, in general, an incentive to keep the pay of the average American worker, and that of their counterparts in other countries, relatively stagnant, regardless of those worker's talents?

MckT asks: "Would he/she still do the job for less?"

The metric used in reference to the average worker by the hard-as*es/hard knocks types I've known is "not only will they do the job for less, but they'll be happy to have the work."

Just as high marginal taxes well into the 1960s for all levels of income didn't seem to stunt growth and productivity during what many feel was a golden age (fair-turnabout here; many conservatives believe the 1950s was somehow a sweet time for business and, entrepreneurship, and the country as well), I don't think some reasonable limits on pay disparities will make a dent in the go-getter, highly motivated elite.

Unless something else is happening in the culture.

Now, you might well arsk WHO will decide and impose these reasonable limits.

Personally, I'd prefer the hyper-productive elite do it themselves, or in the case of corporate officers, that their boards exercise some restraint.

Or they could increase the remuneration of their average workers to close the gap.

Or maybe, for starters, just stop whining about the minimum wage and the lowest Federal taxes in 70 years.

Or maybe, at least, stop having pictures taken of yourselves with currency sticking out from your lapels and collars.

If it's held that we can't have some reasonable limits, then what's the point in anything?

Look, Mickey Mantle and Willie Mays were underpaid for their production nearly all of their careers.

Mark Texieira and numerous others in baseball today are overpaid.

Progressives AND conservatives know it.

The market can bear it, apparently, but I don't think we want to see what happens when society and the public good can no longer bear it.

[hairshirthedonist]

I am indifferent to executive compensation. It doesn't affect me or anyone else.

I disagree. I think the current paradigm increases moral hazard, resulting in poor corporate management and excessive short-term thinking. I think it hurts the economy, regardless of whether the compensation itself is a significant portion of our economy. Resources get allocated more poorly and less value is created, which hurts us all.

I think we are over-regulated in areas where regulations simply are not necessary.

Like Glass-Steagall?

Worrying about executive compensation with 15 trillion in debt and no end in sight is, to borrow an over used expression, rearranging deck chairs on the Titanic.

See above. Part of that debt bailed out poorly run investment banks whose executives were overpaid. And part of that debt is the result of lower tax revenues resulting from the damage those investment banks caused our economy. Another part is increased welfare payments resulting from the same.

The purpose is to generate resentment and jealously and the implication is that government can and should fix the problem.

See above again. That, and I don't know what the solution is, or whether it should involve government. I'd think a shareholder and customer revolt of some sort might be better than legislation.

[russell]

McK, I suspect you are having a conversation with a man made of straw.

Who proposed regulation?
Who is looking for across the board rollbacks in CEO compensation?
What the heck does CEO compensation have to do with farm labor regulation, or with the federal debt?
For that matter, what does farm labor regulation have to do with the federal debt?

The reason people care about this stuff is because it runs counter to a basic and intuitive sense of fairness. C level salaries are much higher relative to overall compensation, and relative to corporate performance, than they were 15 or 20 or 40 years ago.

Why? What is the justification for that?

One possible reply is "they don't need no stinking justification", they made the best deal they could get, if you have an issue with that take it up with the board.

Another possible reply is that, if they're getting that kind of money, it's obvious through some kind of Panglossian magical market QED logic that they must deserve it. Otherwise the market would never award it to them, would it?

But one possible explanation is that the folks who determine executive compensation are quite often the same folks who receive it, or at least are social peers of the folks who receive it, and so executive compensation has grown out of proportion to the value they create.

It matters because what keeps the wheels on is a broad sense that our social, economic, and political institutions operate according to some approximation of fairness. If that goes, a lot of things go along with it.

The feds aren't going to do anything about C-level compensation, and that's fine with me. That has nothing to do with whether it's fair, or justifiable, or good for either the corporations themselves or people in this country in general.

[hairshirthedonist]

Me: "I'd think a shareholder and customer revolt of some sort might be better than legislation."

I should add employees to that revolt. (After all, the employees are revolting.)

[Countme-In]

The Titanic, from wikipedia:

"The ship was designed to be the last word in comfort and luxury, with an on-board gymnasium, swimming pool, libraries, high-class restaurants and opulent cabins. She also had a powerful wireless telegraph provided for the convenience of passengers as well as for operational use. Though she had advanced safety features such as watertight compartments and remotely activated watertight doors, she lacked enough lifeboats to accommodate all of those aboard. Due to outdated maritime safety regulations, she carried only enough lifeboats for 1,178 people – slightly more than half of the number traveling on the maiden voyage and one-third her total passenger and crew capacity."

Kind of a floating Lehman Brothers.

Our analogies can serve all masters. ;)

Regarding our debt, some portion of that debt could have been avoided had taxes not been lowered so drastically, so many times.

[Countme-In]

The difference between the good old days and today is that Captain Smith went down with the Titanic, where as Captain Letsawavetomyfriends hopped off the Costa Concordia with one of the (again) too few lifeboats to supervise from high ground.

Yes, culture has changed.

The latter was acting in his rational self-interest.

[Countme-In]

By the way, the extravagantly compensated have returned a meager 4.5% annually, far below the percentage increase in their own returns, to shareholders over the past ten years, as measured by the Standard and Poor's Index.

[sapient]

I agree with hairshirthedonist about the moral hazard. Why would any executive look to the long-term health of a company when he can earn enough for a lifetime in one year? Employee compensation is such that most employees have an interest in keeping their jobs (therefore doing a good job), because they know they have to work in the future.

[Phil]

The recent proposed rules for family farm labor are a good indication of how regulatory progressives think.

For those wondering, the "legislation" to which our esteemed colleague is probably referring was designed to prevent tragedies like high school students having their legs cut off in giant augers, and applied to "family farms" like . . . well, not at all. It didn't apply to family farms at all.

These are large agribusinesses, if not ADM or Monsanto large, and the kids who work there are no different than the kids who work at Burger King, except they face a great deal more danger. I seriously doubt that, in the face of rules to protect teen employees from dangerous fryer accidents, one would refer to a franchised Burger King as a "family-owned restaurant."

Oh, btw, the "legislation" in question was actually Dept. of Labor rulemaking. The legislation part came from conservatives doing what they always do - working the refs and changing the rules by introducing a bill to rescind the DoL's ability to make such rules. That legislation was named the "Preserving America’s Family Farm Act," in an effort to fool people like McK, and it apparently worked.

Because that's how anti-regulatory conservatives think. If The Market wanted those kids to have legs, they would.

(The Obama administration, in case you're interested, blinked in the face of the proposed legislation.)

[Slartibartfast]

The difference between the good old days and today is that Captain Smith went down with the Titanic

Naw, it's better today. Today, cost control auditors would advise them to carry 0 lifeboats if they were so convinced that lifeboats weren't needed.

[Laura Koerbeer]

Kids who work on real family farms aren't paid unless you count their allowances.

Farms that can afford employees usually aren't small family farms. Conservative legislators are lying, as usual.

BTW when I was in college I did farm work. I worked in fields owned by Iowa State University.

My ex-father-in-law had a small and unprofitable orchard. He hired seasonal labor--a family of illegal immigrants. The parents were illegals. The kids were born here. The only people who were paid were the parents, but the parents brought the kids along and the kids worked. It was safe work: summer, no school, just picking up apples and putting them into boxes. They were juice apples. It was piece work, if I remember correctly, which is why the parents brought the kids along.

The orchard never produced enough income to justify itself. The only money my ex-parents-in-law made was when they sold it to a subdivider.

[Countme-In]

This graph is all over the place -- saw it again at Digby this morning.

Our Federal debt and from whence it derives:

http://digbysblog.blogspot.com/2012/04/whose-status-quo-are-they-protecting-on.html

[Countme-In]

Regarding taxes, things could get very scary.

Heeerrrree's Johnny:

http://www.thedailybeast.com/articles/2012/04/30/stephen-king-tax-me-for-f-s-sake.html

[CCDG]

" I think the current paradigm increases moral hazard, resulting in poor corporate management and excessive short-term thinking."

I agree that the current paradigm for publicly traded corporations in the US creates some increased level of moral hazard. Quarterly reporting vs semiannual in Europe accentuates this.

As for pay, the comparison between rises in CEO vs worker pay is really not valuable.

First, the calculations of those numbers is never defined, pay now includes varieties of options and stocks that get priced at market, etc. How did they get calculated in 1990? Was that prior to Black-Shoals? are they adjusted?

More important though, there is no definition of how big (number of employees, plants) or complex or international a company the current CEO's are managing in comparison to the CEO's X years ago. Is the job they are doing the same? In large part the workers jobs are the same.

Also, what percent of overall profits (or revenue)is CEO compensation today vs then?

And, finally, how much do the Fortune 100, 500?, CEO's skew that number? I know several CEO's whose compensation would be closer to 3 or maybe 4 times average employee compensation, perhaps 8 if you counted all of their out of the money options that are worthless until they make them worth something.

The generality built into those completely contextless numbers makes the comparisons, in my mind, completely meaningless.

[russell]

First, the calculations of those numbers is never defined, pay now includes varieties of options and stocks that get priced at market, etc.

All true, but at some point it still turns into money in somebody's pocket. I'm not sure you can make a 20x difference in compensation differential go away by citing accounting differences.

More important though, there is no definition of how big (number of employees, plants) or complex or international a company the current CEO's are managing in comparison to the CEO's X years ago.

The examples I cited compare current compensation to the 60's (pretty long ago) and 1996 (less than 20 years).

In terms of the kinds of corporations we're discussing - Fortune 100 / Fortune 500 - I'm not sure how different the scale and overall complexity is.

Top 5 in 1965: GM, Exxon, Ford, GE, Mobil.
Top 5 in 1995: GM, Ford, Exxon, Wal-Mart, AT&T.
Top 5 today: Wal-Mart, Exxon, Chevron, ConocoPhillips, Fannie Mae.

I'd also say that 'workers jobs' are, in many many cases, quite different now. Certainly compared to 45 years ago.

And, finally, how much do the Fortune 100, 500?, CEO's skew that number?

IMO in this context we're basically talking almost exclusively about Fortune 100 / 500 corps, and that includes a lot of the financial sector, where executive compensation is extraordinarily high.

My experience is also that CEOs are not, by far, earning 3-digit multiples of average compensation in their firms. Depending on size of firm / mix of job skills involved / how far along the business lifecycle they are, multiples likely range down to the numbers you cite.

To pick an "authority" out of the air, salary.com gives median executive salary at about $725K. They seem to be a little unclear on the distinction between "average" and "median", and I don't know if this is salary only or total comp, but I think it's fair to say that most CEOs who are not also principal owners aren't making multi-millions of dollars.

"Completely meaningless" is another question altogether.

[russell]

You know, whenever this topic comes up, I always think of the scene in "Pretty Woman", where Richard Gere and Ralph Bellamy send the suits out and talk turkey.

"Let's build something" they say. Not cash out, not turn the accumulated human and investement capital represented by Bellamy's factories into nice liquid money. Leave it in place as an ongoing concern. Take the long view.

That was only 20 years ago, but it seems laughably quaint now. Yeah, it's only a stupid movie, but still. It actually makes me, truly and literally, sad.

I actually do know a fair number of people in the start-up world, in a number of industries. Work and worked for them, know them personally either just socially or through my wife's professional contacts. I really don't know all that many whose goal is to build anything really enduring.

Build it big enough to sell, and cash out. That's the new American dream.

It's not all like that. Sometimes things take on a life of their own. So, Wal-Mart, MS, Apple, Oracle, probably Google, they'll keep chugging after the principals are gone.

But most folks are mostly looking for the big payday. I don't think it was always like that.

[CCDG]

"But most folks are mostly looking for the big payday. I don't think it was always like that."

It wasn't. I couldn't agree with this view more. It is a truth of our times that I am becoming an anachronism. I am really good at running a company so that it grows a little and survives the cycles of time. My last company survived the tech downturn of 2001 and then 2009, made about 15% a year in between and didn't layoff anyone after 2001, right after I took over. Then the VC's decided that wasn't good enough and made us cash out.

Since then I have interviewed at very few companies where my first question, after a few minutes of discussion, wasn't, "How long until the exit"? They don't care how we ran a successful company for ten years, just how we got it ready to sell in one.

And I have lots of friends who pride themselves in being "serial entrepeneurs". Failed or sold three years is all they want to put into a company, Failed, oh well, it's someone elses money. Sold, great, what was my cut? And they almost always, with notable exceptions, leave the employees with almost worthless options.

They make the "CEO's" we discuss look like Robin Hood.

end rant.

[bobbyp]

I don't think it was always like that.

Russell, you are really being unfair to the memory of Jay Gould.

[Phil]

Timely!

The word on the street is that WPP head Sir Martin Sorrell is getting a huge pay raise, which could stir up controversy over executive pay. It’s an issue that’s rearing its head at a number of companies, particularly at banks. (Mediapost has info about executive pay at other holding companies.)

At Barclays, 27 percent of shareholders voted against a $19.5 million pay package for CEO Robert Diamond. Andrew Moss, CEO of insurance company Aviva, has turned down a pay raise after shareholders expressed anger.

Shareholders at Credit Suisse have overwhelmingly voted against the bank’s pay package plans, with one attendee at the recent investor meeting saying, “You should be ashamed of yourselves for taking so much money away from us. We are the owners of this bank, and you are our employees. We should be the ones who decide what you earn.”

And Citibank investors voted against the pay packagees for CEO Vikram Pandit and four other executives. The Christian Science Monitor notes that it’s institutional investors that got angry about Citibank’s plans.

(NB: I believe all of these shareholder votes are nonbinding, even the institutional investor ones.)

[Ugh]

One place to look for data is a comparison of compensation for executives of U.S. based companies vs. that of foreign based companies. My recollection of reading articles over the years is that US exec comp is outsized even compared to similarly situated foreign exec comp (e.g., we're talking 5-10 times as much).

A book length critique of executive pay as practiced in the US (and maybe elsewhere) is here (note the review by Stephen Bainbridge of not-exactly-a-liberal-fame, who agrees with the critique, if not the solutions). Basically, the critique is that the Board is controlled by management and not the shareholders (among other things), which leads to obvious problems.

I also give you Treas. Reg. Sec. 1.132-5(m)(1), which provides in part that "if an employee travels on a personal trip in an employer-provided aircraft for bona fide business-oriented security concerns, the employee may exclude the excess, if any, of the val[u]e of the flight over the amount the employee would have paid for the same mode of transportation, but for the bona fide business-oriented security concerns."

What does this mean? If an employee takes a vacation on the corporate jet he only has to include in his income the cost of a business class ticket for a similar flight (or some approximation thereof) and not the actual cost of flying the corporate jet, so long as it's for business security concerns. Thus, even though it may cost a company $50,000 to fly the corporate jet round trip from NYC to Bermuda for an exec's vacation, the exec only has to include the equivalent business class fair in income (and oh, BTW, the corporation can nevertheless deduct the full $50,000 cost).

Needless to say, it isn't difficult to establish a "business-oriented security concern."

This is, pure and simple, tax-free income to employees lucky enough to have access to corporate jets.

[Yama001]

"Tough for you guys, because I’m not tired of talking about it. I’ve known rich people, and why not, since I’m one of them? The majority would rather douse their dicks with lighter fluid, strike a match, and dance around singing “Disco Inferno” than pay one more cent in taxes to Uncle Sugar."

Holy crap, who knew the Count was Stephen King?

[Slartibartfast]

As much as I like Stephen King, I think he's misguided. Simply increasing the upper-bracket rate is not going to solve the problem. Taxing capital gains at 100% (and, as far as I have seen, increasing capital gains rate at all has not really been seriously proposed) is not going to solve the problem. What King is proposing is roughly equivalent to the fire department responding to a three-alarmer by unzipping and peeing on it.

[Julian]

"and, as far as I have seen, increasing capital gains rate at all has not really been seriously proposed"

Really?

"Simply increasing the upper-bracket rate is not going to solve the problem."

Can you cite to a politician or administration official who claimed that raising the top marginal rate would be enough?

I don't think anyone did. I believe the position is that it would help, so we should do it.

Now, if you think it would affirmatively hurt us, that's a different argument.

[Slartibartfast]

Really?

Hadn't seen that. It only took a few years of fair-share-rhetoric before something like that finally got proposed. Probably everyone was simply exhausted, after the battle over health care.

But the 40% proposal isn't on capital-gains; it's on dividends. And according to Wikipedia (not the final authority, granted) the dividend rate pops back up to 39.6% in 2013, regardless of what tax hocus-pocus that Obama has in mind.

But he's talking about upping the capital-gains rate to 20%, so there's that. It won't really help much, but it will show that he's doing something, or at least proposing something.

So.

Can you cite to a politician or administration official who claimed that raising the top marginal rate would be enough?

That's all anyone is talking about, as a solution, isn't it? Or have I missed something else important?

[Slartibartfast]

Oh, and the capital gains rate? Unless Obama signs another extension of the capital gains rate cut, it goes back to 20% (LTCG; 18% on short term gains) next year automatically.

[hairshirthedonist]

That's all anyone is talking about, as a solution, isn't it?

Solution to what, exactly?

[Julian]

Obama also proposed defense cuts.

And the ACA is projected to save money, too. The number I remember from a Washington Post editorial was sneeringly estimated at 47B over ten years. I don't know what numbers the OMB gives.

I am pretty ignorant about entitlement reforms but I do think I've read that Obama has proposed many of them - I have indeed repeatedly read angry liberal bloggers complaining about him selling out on this front.

The administration has a lot of proposals. I don't know which ones are the best. But to say that raising the top marginal rate is "all anyone is talking about, as a solution," is false, unless you're defining "anyone" to exclude Democratic politicians.

Raising top marginal rates is part of a panoply of solutions.

I don't understand your point about the capital gains cut. It doesn't count as a revenue raising measure because it would happen automatically, in a vacuum?

We don't live in a vacuum. Our government will decide whether it goes up. I am confident Romney opposes it automatically going up. Do you think that if he is elected, it will go href="http://www.forbes.com/sites/beltway/2012/01/24/capital-gains-taxes-are-going-up/">up?

[Countme-In]

At the risk of throwing gasoline on this local fire I started with the King link:

http://www.youtube.com/watch?v=Li-ycIvcJso&feature=related

I can't decide whether Carrie is played by Grover Norquist or if the sinister plotters underneath the stage with the rope leading to the bucket of pig's blood are played by Grover Norquist, but I suspect he'll take whichever role gives him a shot at ruining whatever prom night the baby in the bath tub had planned.

[CCDG]

"but I do think I've read that Obama has proposed many of them"

Yes, in speeches and vaguely through the media. At no point has a proposal from Obama that cuts ny spending reached either house of Congress, or pen and paper. The budgets he has submitted saved all spending and raised taxes.

And, to Slarts point, the campaign rhetorid is all about raising taxes on the rich leaving people to assume that would fix ourdeficit/debt problems.

In fact, raising capital gains would have the primary NOTICEABLE effect of reducing significantly the income of every senior citizen trying to live on their savings. Tripling the taxes on dividends would take away the last place a senior citizen can actually make more than the rate of inflation on their savings. Great reasonably risk free dividends run about 4%, less 39% instead of 15% and it hurts the very people we would like to be helping.

But we cant do that because one of those 10-30,000 rich guys might make some extra money.

[Julian]

Obama's recent budget proposal.

Two quotes from it:

"Those cuts would include select farm subsidies and federal employee retirement and health benefits, for savings of $217 billion over a decade."

"The budget would cut more than $360 billion from Medicare, Medicaid and other health programs over a decade."

This is what you said:

"The budgets he has submitted saved all spending and raised taxes."

I assume you intended only to exaggerate. I only bothered to look up news stories about Obama's most recent budget proposals, so if you can point me to an Obama budget proposal that actually does what you've accused him of, I am happy to glance at it.

"But we cant do that because one of those 10-30,000 rich guys might make some extra money."

Yes, that is correct. How much extra money they'd make is an issue, isn't it? You call it "some extra money," but it's not "some extra money" to those old people, is it. You can't have it both ways - it's either money worth recouping or it isn't.

If it is, then we have to decide whether it's better to let the elderly and rich keep it, or if it's better redistributed. That is, to my understanding, part of the point of taxation.

Lastly, I will note that it is odd that we fixate so intensely on assuring comfortable living for the elderly - what about people 18-40? No social programs for them?

[CCDG]

"Lastly, I will note that it is odd that we fixate so intensely on assuring comfortable living for the elderly - what about people 18-40? No social programs for them?"

Really, you find that odd? I find it odd that we don't fixate on it more, even at the expense of people 18-50.

If it is, then we have to decide whether it's better to let the elderly and rich keep it, or if it's better redistributed. That is, to my understanding, part of the point of taxation.

It is money worth having for millions of senior citizens, and to fret about a few thousand rich people getting what would be an almost inconsequential amount to the redistribution process so we deny the income to millions is, well, unfair.

[Slartibartfast]

Solution to what, exactly?

If you don't think continuation of trillion-dollar deficits might present a problem, then we have a disagreement that's more along the lines of whether there's a problem, instead of how to solve it.

Which is a different conversation, I imagine.

And the ACA is projected to save money, too.

I would say there's been heated discussion over whether, and over how much. To my eye, though, the perhaps $20B/year perturbation to the budget on either side of zero makes this relatively inconsequential.

Our government will decide whether it goes up.

No, our government will decide whether it continues being where it is. There's a nontrivial difference in action, there.

It doesn't count as a revenue raising measure because it would happen automatically, in a vacuum?

Bluntly: no, it doesn't count. It's done. Obama's 2013 budget didn't change the law at all in that respect, and so that Reuters article is so much uncomposted fertilizer for a) representing the tax increases as part of some brave deficit-cutting measure, and b) not giving the barest mention to the fact that it was all going to happen anyway.

[Slartibartfast]

I guess you could make me shorter by saying that Obama deserves some credit for not proposing that we again continue the ongoing "temporary" reduction in capital gains and dividends rates. But he doesn't get credit for actually boosting those rates up, because that was already built into the law.

[hairshirthedonist]

If you don't think continuation of trillion-dollar deficits might present a problem, then we have a disagreement that's more along the lines of whether there's a problem, instead of how to solve it.

The question isn't simply whether or not our deficits are a problem. They may or may not be, depending on what you think makes something a problem. The question is about what (other) problems might be solved by raising capital gains rates, if any.

Maybe the problem you're trying to solve is the distribution of taxation being too disruptive of aggregate demand. Maybe it's to placate those people who assume taxation is truly revenue, in the same sense that obtaining dollars is to you and me, and who demand that some tax or another pay for what even they agree are worthwhile efforts for the federal government to undertake. Maybe you just think it's a question of fairness, or that it just works better.

And, to Julian's earlier point, maybe it simply helps to reduce future deficits, along with a bunch of other things that do the same. So, in all of the above, feel free to replace the word "solve" with the word "mitigate" (or whatever synonym you prefer).

[hairshirthedonist]

In fact, raising capital gains would have the primary NOTICEABLE effect of reducing significantly the income of every senior citizen trying to live on their savings.

I have a hard time believing that this is remotely true. Do you have something to back this fact up, Marty?

(BTW, I recall someone making a stink over people referring to commenters by previous handles based on it being somehow disrespectful. I use Marty because I "knew" you when you went by Marty, and I see it as conveying familiarity and a longer-term on-line relationship. In short, I use it affectionately. If it bothers you, Marty, please say so, and I won't use it any longer.)

[hairshirthedonist]

Please mentally italicize that first paragraph in my last comment.

[hairshirthedonist]

Great reasonably risk free dividends run about 4%, less 39% instead of 15% and it hurts the very people we would like to be helping.

Sorry for the serial comments, but this one just hit me, and no one else has commented in a while.

Anyway, dividends will be subject to the ordinary tax rates, meaning that you'll have to be pulling in close to $400k a year to hit the 39.6% tax rate. Let's not paint this as taking food out of grandma's mouth. (And my grandmother has been living primarily off of her savings for the last 30+ years. She hasn't seen a dividend or a capital gain in her life.)

[Ugh]

CCDG - HSH is right, the fact that the cap gain rate on the highest income earners might go from 15% to 20% isn't going to hurt grandma much, and it's especially laughable to cite a dividend rate increase from 15% to 39.6% as hurting grandma since, as HSH notes, grandma will have had to earn close to $400k that year to hit that rate.

Indeed, grandma would have earn more than ~$35k (not bad for a retiree presumably living off a fixed income) before the increased dividend rate would even kick in at all.

And let's not forget that the special dividend/cap gain rates do not even apply if grandma is withdrawing funds from an IRA, 401k, or defined benefit plan.

[CCDG]

hsh, the familiarity is great with me. I am happy to be called Marty, or AJ or Ray J, you doesn't have to call me Johnson. :)

[CCDG]

And here is a chart(pretty far down) of seniors that claim dividends on their tax return.

[hairshirthedonist]

But, Marty, you claimed that their incomes would be significantly lower. Just because people claim dividends doesn't mean that a significant portion of their incomes come from dividends, let alone that the difference in the tax on those dividends will significantly affect their incomes.

Either way, the rates are progressive, meaning you have to be a high earner in the first place to pay the higher rates. If you are pulling down close to $400k on a 4% dividend as a senior, you don't really have to worry about running out of money. How much fncking stock would have to own? By my math, $10,000,000 worth.

That grandma will be just fine.

[Ugh]

CCDG - thanks for the link. As Eric Martin once put it, Heritage is on the "Clown Shoes" list.

And, wow, what a horribly misleading article. They're not even comparing apples to oranges, more like apples to air craft carriers.

[CCDG]

hsh, I didn't reference anything in the article except the table I was asked for that shows millions of seniors live at some level off dividends. In 2005, before dividend stocks for many replaced bonds as income vehicles, over 7 million seniors relyed on them for income. Half or more of those making under 200k.

I disagree that it is irrelevant to tax those fixed income folks more, anywhere from a little to a lot.

Ugh, I didn't agree with Eric then or you now that there isn't value in understanding Heritages position though.

[hairshirthedonist]

I disagree that it is irrelevant to tax those fixed income folks more, anywhere from a little to a lot.

No one said it was irrelevant. You went from saying that "raising capital gains would have the primary NOTICEABLE effect of reducing significantly the income of every senior citizen trying to live on their savings" to disagreeing that it is irrelevant. What happened to "significantly" and "every"?

Now, we've shifted from capital gains to dividends, but there's still the question of progressivity in either case. So how high can someone's fixed income be while any increase in tax is unfair or wrong or harmful (if not "irrelevant")?

Why does it matter that their incomes are fixed if those incomes are 1) high and 2) generated from enormous assets, particularly if the people we're talking about are older, don't have kids to raise and are much closer to the ends of their lives?

And what is so magical about our current levels of taxation? Or why is it only okay for them to go down, regardless of how much lower they are than they once were? Were there no rich old people before, when we had higher dividend and capital gain rates? Or were rich old people suffering then because of the previous rates?

[hairshirthedonist]

The more I think about it, Marty, I realize that the argument you're presenting boils down to this:

We cannot raise the tax rate by any amount on any given type of income at any level of income because someone on a fixed income might receive some part of that income as the type of income on which the tax rate would be raised.

So, basically, we can never raise income tax rates, ever.

[Countme-In]

Slart, way up thread:

"What King is proposing is roughly equivalent to the fire department responding to a three-alarmer by unzipping and peeing on it."

hairshirthedonist, just above:

"So, basically, we can never raise income tax rates, ever."

(Add in here all of the other taxes as well, SS, Medicare, State and local; Norquist has been busy getting state and local Republican officeholders to sign the Pledge, too, so devolution and state and local solutions replacing federal power are out, too.)

When your house is on fire, one guy taking a piss is still better than an entire electorate stopping by with fake kidney stones, enlarged prostates, and willful urinary retention to warm their hands on the conflagration.

All of that tea being drunk and not a pot to pee in.

Then, of course, you have the flame-thrower brigade among them who refused to finance two wars by at least keeping taxes where they were in 2001, so we had to de-fund the fire department.

I could link to Bruce Bartlett, erstwhile conservative and Republican, regarding the situation, but what's the point?

Just another guy pissing into the wind.

As we know, the Reagan-era tax increases and the Clinton-era tax increases caused two straight Depressions and horrific bear markets and untold suffering from which we've never recovered.

[CCDG]

hsh, Actually my original statement is what I stand behind, the primary noticeable effect is a significant impact on senior citizens living on fixed incomes.

It is not so relevant that the tax is progressive, as it is relevant that at every level it increases the taxes. For those who aren't paying 39.5, there is something between fifteen and 39 they have to pay.

At 22% it is an increase the equivalent of the payroll tax, except it wouldn't bring enough into the tax system to matter, it would only be meaningful to the individuals effected.

That, of course, doesn't apply to the payroll tax. Or the broadbase Bush tax cuts which account for 3 trillion over ten years.

But those people really need that 3-7%. So it isn't me that objects to raising any taxes, I just object to targeting a class of people/income that won't do a lot of good in reducing the debt issues and crying about fairness to get reelected.

[bobbyp]

If you don't think continuation of trillion-dollar deficits might present a problem, then we have a disagreement that's more along the lines of whether there's a problem

No. We have a very basic disagreement on what "the problem" is.

[hairshirthedonist]

So, by treating all dividends as ordinary dividends, which were always treated as regular income, unlike qualified dividends, which have been taxed at capital gains rates since 2003, but which were taxed as regular income before that, we are now targeting a class of people - namely senior citizens, because ... they are, as a class, especially dependent on qualified divideds for large percentages of their incomes? Is that it? And that's the point of returning to the arcane tax rates from way back in the olden days of the year 2000?

In any case, if you narrow your analysis down to some minority of people paying tax on a particular type of income, you'll always be able to say that any reasonable tax increase on that minority's portion of income that is of that particular type won't be enough to significantly reduce the debt.

And what class of income, in terms of tax treatment, exists that no senior on a fixed income earns?

We are back to: So, basically, we can never raise income tax rates, ever.

[russell]

The tax thing always makes me shake my head.

Why do we, as a nation, owe a lot of money? Twelve years ago we were in the black. What happened?

We decided to fight two wars which we funded with "supplementals". We created a brand spanking new, and very expensive, entitlement to provide pharma coverage via Medicare, and we did not fund it. We cut the tax rates, in the face of credible predictions that it would lead to massive deficits, and lo and behold it did. And we deregulated the financial sector, who never met a sweet con they could say no to, and they blew the f***ing economy up.

That's my analysis.

And when I say "we", I mean "we". Not liberal free-spending Democrats, not specifically Republicans, although Republicans led the charge on much of the above. The people of the United States of America, through their elected representatives of all political stripes, sh*t the economic bed.

We pissed away our surplus, and now the bill is due. Raise the god-damned tax rates and pay it off. It is not going to happen in one year, but it might in ten or fifteen. And short of some kind of truly miraculous economic recovery, it's not going to happen any other way.

Put the freaking tax rates back to what they were before the Bush cuts and raise the revenue.

This is not rocket science.

The problem is nobody wants to pony up. There is no other problem. It's not an insuperable dilemna, the problem is that nobody is willing to step up and get it freaking done.

We spent the money, now the bill is due. We need to pay it. I don't understand what else there is to it.

And no, "being realistic" about entitlements is not a good solution. You want to take it out of social security? The average social security benefit is about $1200 a month. CCDG's worried about people having the dividends they live on be taxed at 39.6% instead of 35% if they get more than $400K in dividends. I'm worried about the folks trying to freaking live on $25K a year.

George freaking Will says just raise the retirement age to 74. US average life expectancy is 78.1 years. So yeah, no sh*t Sherlock, if we all waited until we were four years from death to retire, there would be no SS problem. What an asshole.

Leave the god-damned poor people alone and pay your damned bills. That is my recommendation.

And yeah, that includes me. My household income and net worth would mean that my taxes would go up. Raise my taxes, please, and let's move the hell on.

[russell]

The other thing that always makes me shake my head when I think about it, is that we always argue about income tax rates.

We didn't always run the country on income taxes. For a considerable amount of our national history, there was no income tax. And yeah, the government was smaller, but so was the country.

Back in the day, the primary sources of federal revenue were luxury taxes and tariffs. I say bring them back. No mortgage deduction for anything other than primary residence, and than only for mortgages up to the median home price in your zip code. That number is not hard to find, if Zillow can figure it out, so can teh feds.

Great big whopping federal excise on any consumer purchase over, say, $250K. So, yachts, art work, serious bling, private aircraft, you pay big dollars to Uncle.

That, and anything made or grown outside of the US gets a surcharge.

Check out the luxury goods and luxury second home markets, and our balance of trade, and tell me there's not some serious low-hanging fruit to be found there.

Plus, it's what the founders did. Just a thought.

[CCDG]

"And what class of income, in terms of tax treatment, exists that no senior on a fixed income earns?"

The right question, IMHO, is "what type of income is the one received by the most people so that when we raise that tax we actually collect enough extra money to make a difference, and everybody helps pay?"

russell, as you may remember, I am for letting all of the tax cuts expire.

[hairshirthedonist]

George Will types out inane op-eds for a living. Let him wrestle a jackhammer for a couple of years and we'll see if he can keep it up until he's 74.

[hairshirthedonist]

russell, as you may remember, I am for letting all of the tax cuts expire.

That's what we've been talking about this whole friggin' time, dude!!!

[CCDG]

"That's what we've been talking about this whole friggin' time, dude!!!"

No we've been talking about picking and choosing which pieces to expire while keeping the only ones that make any difference.

But, if we let them all expire, then we could talk about what to do with the money.

[bobbyp]

We spent the money, now the bill is due. We need to pay it. I don't understand what else there is to it.

So who, exactly, are we paying it to, and why is it so urgent to do so?[1]

You want to pay down the debt?[2] The best way to do that is a little inflation, some robust economic growth (i.e., jobs, jobs, jobs), and low real interest rates.[3]

Rather than argue about tax rates, I would think it more fruitful to discuss our current system and its "socialism for the rich" structure. Insofar as we have constructed a society that systematically shifts income upward, it strikes me as pointless to get all worked up about a few % of marginal tax at the highest level.

[1] See Dean Baker on the alleged "burden" the public debt places on our grandchildren.

[2]Andy Jackson paid the US debt off to the last penny. This was followed shortly thereafter by one of the worst panics and depressions of the 19th century. Is there some reason I am missing as to why we should repeat this?

[3]I have recommended JW Mason's Slack Wire blog several times....please do check it out. Thanks.

[hairshirthedonist]

Light the money on fire or shred it for confetti (pretending it's paper cash). Would that matter? (A wink's as good as a nod to a blind man, bobby p.)

[hairshirthedonist]

Cross-posted. I was responding to Marty (CCDG), but only coincidentally addressed bobbyp in doing so.

[bobbyp]

Light it on fire...why not? Do some here really believe that "our money" as paid in taxes is secreted away in vaults in WA DC? Why bother? Money can be replaced at will.....but let a person go without a job, without an education, without a hope, ay, now you are really talking about crippling the future.

I am more worried about who departs American Idol next than I am about the level of the national debt.

[Hartmut]

I have said id repeatedly:
Grover Norquist has successfully persuaded enough people that he is the http://en.wikipedia.org/wiki/The_Bottle_Imp>Bottle Imp and that by signing his pledge they have bought the bottle. The price is the tax rate and whoever comes to the end of his or her term and has not sold the item to the next fool by lowering the top rate again will burn forever in hell. It became even easier for him since the customers have all reached drunken sailor status.

[Slartibartfast]

I am more worried about who departs American Idol next than I am about the level of the national debt.

I think you've made that very clear, but I doubt your confidence has magically rubbed off on the US voting public.